5 Tax Planning Steps to Take Before the Year Ends

As we enjoy the final quarter of 2017 (yes the last two months of the year are here), I am sure you cannot believe how fast this year has gone by.  Keep in mind that the year is not going to slow down and there are several things you should be thinking about as the final days of the year pass.

Here are five things you should review in the next couple of weeks to ensure you are prepared for 2018 and filing your 2017 tax returns.

1. Take Caution Before Investing in Non-Qualified Accounts

This time of year mutual funds begin to announce their plans to distribute capital gains to their shareholders. The last thing you want to do is make a significant investment in a mutual fund and get hit with large capital gains after only owning the fund for a few weeks. Does this mean you should not invest in these types of accounts until January 1?  No, you can certainly invest between now and the end of the year, but you must be aware of the potential consequences. In addition, there are strategies you can use to invest your funds now and avoid these capital gains distributions before the end of the year. 

2. Review Your Non-Qualified Accounts 

Take note of your year-to-date capital gains or losses due to sales of investments over the course of the year. You may want to sell some of the investments that are not performing well in your portfolio (take the loss) to offset gains you currently have in your account year-to-date. Another option may be to take some gains in your account if you have a net loss for the year thus far. This type of review will allow you to put yourself in a better tax position for the year. (For more from this author, see: How a Step-up in Basis Reduces Capital Gains Tax.)

3. Check for Carryover Losses on Your Return

You may want to take some profits in some of your holdings if you have carryover losses reported on your return. The IRS only allows you to take a loss of $3,000 after you net out your gains and losses, so utilizing this strategy will allow you to capture a gain without tax liability to the extent you have a carryover loss.

4. Maximize the Benefits of Your 401(k) 

Although you can make IRA, Roth IRA and SEP IRA contributions in 2018 for 2017, your 401(k) contributions (in most cases) need to be contributed in the 2017 calendar year. You should compare the extent to which you have contributed this year vs. the maximum contribution allowed ($18,000 if you are under 50 years old, and $24,000 if you are over 50). You may want to increase this contribution towards the maximum if you are going to be in need of a tax deduction. (For related reading, see: Your 401(k): What's the Ideal Contribution?)

5. Pay Attention to Proposed Tax Reform 

There have been debates as to whether this reform will go through in 2017, be retroactive back to January 1, 2017, or will be passed in 2018. It is important to stay alert because we do not know what the tax reform will look like or what it will mean to you because it is so fluid at the moment. Pay attention because this may have an impact on your tax obligation for 2017.

It is important that the strategies above are reviewed and evaluated for your own personal facts and circumstances. Working with a fiduciary advisor and/or CPA can help ensure you are doing everything you should to be prepared for your 2017 tax filing and to mitigate the tax impact from your investments. 

(For more from this author, see: The Importance of Rebalancing Your Portfolio.)


This article represents the opinion of Mitlin Financial Inc. It should not be construed as providing investment, legal and/or tax advice.